macro quiz 1

GDP

Gross Domestic Product measures the total market value of all finished goods and services produced within a country in a given year.

Real GDP

GDP adjusted for inflation; measures the value of goods and services at constant prices.

Nominal GDP

GDP that does not account for inflation; calculated using current prices.

GDP per capita

GDP divided by the population, indicating the average economic output per person.

GDP Deflator

A measure of the price level calculated as nominal GDP divided by real GDP, multiplied by 100.

GNP

Gross National Product measures the total income earned by a nation's residents, regardless of where that income is generated.

Expansion

A phase of the business cycle where the economy is improving, indicated by increased production and higher living standards.

Recession

A decline in economic activity; characterized by decreased production, falling incomes, and rising unemployment.

Frictional Unemployment

Temporary unemployment occurring when workers are between jobs or transitioning to new positions.

Structural Unemployment

Long-term unemployment resulting from a mismatch between workers' skills and the skills needed for available jobs.

Cyclical Unemployment

Unemployment caused by a downturn in the economic cycle, often related to recessions.

Interest Rate

The cost of borrowing money, often set by a country's central bank, influencing savings and investment.

Natural Rate of Unemployment

The level of unemployment that occurs when the economy is at full employment, commonly viewed as the sum of frictional and structural unemployment.

Rule of 70

A formula to estimate the number of years it will take for an investment to double, calculated as 70 divided by the annual growth rate.

Economic Growth

An increase in the production of goods and services in an economy, typically measured by GDP.

Market Value

The price at which goods and services are sold, reflecting their economic worth.

Potential Workers

Individuals who are able and willing to work; includes those not currently in the labor force.

Labor Force Participation Rate

The ratio of the labor force to the total working-age population, expressed as a percentage.

Underemployment

A situation where individuals are working in jobs that do not utilize their skills or are working fewer hours than they would prefer.

Crowding Out

A phenomenon where increased government borrowing leads to a reduction in private sector investments.

Economic Institutions

Structures and mechanisms of social order that govern the behavior of a set of individuals within a given community.

Economic Scale

The cost advantages that businesses obtain due to the scale of operation, leading to a decrease in average costs.

GDP Deflator Formula

GDP Deflator = (Nominal GDP / Real GDP) x 100

GDP Growth Formula

GDP Growth = ((New GDP - Old GDP) / Old GDP) x 100

Nominal GDP Formula

Nominal GDP = Quantity Produced x Price (no adjustments for inflation)

Real GDP Formula

Real GDP = Quantity Produced x Price (adjusted for inflation using lower prices from a base year)

Labor Force Participation Rate Formula

Labor Force Participation Rate = (Labor Force / Potential Workers) x 100

Employment Rate Formula

Employment Rate = (Employed / People in Labor Force) x 100

Unemployment Rate Formula

Unemployment Rate = (Unemployed / Labor Force) x 100 or (Unemployed / (Unemployed + Employed))

Frictional Unemployment Rate Formula

Frictional Unemployment Rate = (Frictional Unemployment / Labor Force) x 100

Savers

Individuals or entities that set aside a portion of their income for future use, typically seeking to earn interest or investment returns.

Borrowers

Individuals or entities that take out loans or credit to finance purchases, expecting to pay back the borrowed amount with interest.

Interest Rate Spread

The difference between interest rates offered to savers and charged to borrowers, influencing the behavior of both groups.

Savings Rate

The percentage of income that households or individuals save instead of spending on consumption.

Investment Behavior

Refers to how savers allocate their resources, impacting economic growth and the availability of funds for borrowers.

Loanable Funds Market

A theoretical framework representing the supply and demand for loans, where savers provide funds and borrowers seek funds.

Supply of Loanable Funds

The total amount of money available from savers in the economy that can be lent to borrowers.

Demand for Loanable Funds

The total amount of funds that borrowers need to finance their investments or expenditures.